Sanjay G. Reddy's blog on economics and other subjects

Aid: Tales We Tell Ourselves, or Growing up is Hard to Do

When in Madrid last week I happened to meet an official of the Spanish development agency, who drew my attention to the fact that Spain, always a country with a very low ‘aid’ budget (which had however been rising sharply before the crisis began in 2008) has had a sharp fall in its aid budget, from a high of 0.46% of GDP to 0.14% today, a level it last had in 1989. This puts it toward the bottom of the OECD league table, sandwiched between Korea (at 0.13%) and Italy (at 0.16%). Spain’s decision may be viewed by some as understandable in light of its own domestic needs as a result of the crisis, although I am not entirely sure that it is, and from what I was told there has been little or no public awareness of the change let alone a debate. In Madrid, I encountered people on street-corners collecting money for international charities, even as their government took a hatchet to the aid budget.

In contrast, the UK made a political decision to ‘ringfence’ aid from its otherwise swingeing austerity related cuts in order to reach the UN target of 0.7% of GDP, which it first did in 2013 due to an absolute as well as relative increase in its aid budget. (It has not been shy to beat its chest about this, but I suppose its leaders believe they have paid for that right). Meanwhile, countries such as Canada and the Netherlands, which were relatively less affected by the crisis, also had decreases in aid’s share of GDP (respectively from 0.33% to 0.24% and from a fairly respectable 0.81% to 0.66%). The United States remains relatively unchanged at 0.19% (an amount that is disproportionally allocated to countries favored for political reasons). The OECD average is 0.29% of GDP, which is down slightly from just before the crisis, and nowhere approaches rich countries’ ostensible commitments under the Millennium Development Goals (and so on), a fact that is softpedalled in official pronouncements, indicating how much the management of perceptions has come to dominate reality, and to what extent the global development bureaucracy itself has come to have a stake in perpetuating the image of a working system to thus justify a renewed mandate for business as usual. In contrast, Nordic countries (with the exception of Iceland) which are traditional aid superpowers and some others others (e.g. Luxembourg and Switzerland) have held steady or even had large increases in aid expenditure.

The reported relative performance of countries must, however, be interpreted in light of changes to the reporting rules of the OECD Development Assistance Committee (DAC), which has changed its rules (under an initiative with the mind-numbing name of ‘Total Official Support for Sustainable Development’ or TOSSD) to count as aid things which had not been fully counted as such before, including expenditures on refugees resettlement within the donor country, climate change related international-transfers, and support for private companies in the recipient country – often linked to donor countries’ companies and economic interests. To be fair, the new rules appear to have also included a shift toward counting only the ‘concessional’ component of loans as opposed to their whole face value. Although the total impact of these changes are hard to make sense of without a forensic examination, it seems likely that the large shifts observed reflect real changes and not merely reclassification. There is also the longstanding and continuing problem of a very large share of aid budgets often disappearing into staff salaries and so called technical assistance (frequently, fees pocketed by expensive donor country consultants) and of the existence of a gap between publicized commitments and sometimes paltry actual disbursements.

A few days ago, President Uhuru Kenyatta of Kenya called on African countries to give up on aid, despite the fact that Kenya is itself a sizable aid recipient and many African countries are far more reliant on aid than Kenya. There have been similar moves in India in recent years, seemingly based in large measure on reasons of national prestige, even as it and other countries have emerged as ‘new donors‘. I am not one of those who believes that aid is worthless or even harmful but on the contrary think that it can be used well over the long-term as one resource among many. As a result, although I understand these political motivations, I find this attitude hard to square with the claim of governments to represent the real needs and aspirations of people in their countries, even if the aid amounts involved are indeed in certain countries ‘peanuts‘, (partly because of enormous and seemingly arbitrary but often politically motivated differences in per-capita aid allocation across countries). The countries involved may have extraordinary technological competences and a growing economic role but that does not change the facts of remaining mass poverty (even according to conservative estimates) or of giant international income differences which are still increasing in absolute terms and only a little reduced in relative terms. There are also questions of historical and contemporary injustice which make North-to-South resource flows (which may not in any case make up for simultaneous legal and illegal south to north resource flows) a means of recognizing the complex bonds of mutual obligation, so that they cannot be viewed merely as a gift. A process of development rooted within a country’s own growing competences which can sustain the conditions of good lives and livelihoods is ultimately necessary. Aid is at most support or supplement, and never solution, but aid bashing is a misleading distraction.

One is reminded of the joke told under existing communism that ‘they pretend to pay us and we pretend to work’. Here, as often as not, we pretend to give it and they pretend to have no use for it. It would be nice to give up the pretence — some day.